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Production of Documents in Cross-Border Arbitration: Bridging the Cultural Divide

January 2011

Mayer Brown Article

*Eduardo Maccari Telles is with Tauil & Chequer Advogados in association with Mayer Brown LLP and is a contributing author.

IntroductionIn cross-border arbitration, differing jurisdictional rules and priorities can create significant problems, particularly in the area of discovery. In fact, depending on the jurisdiction, a party’s domestic litigation background may provide very little experience with the pre-trial discovery or written witness evidence often required in arbitration proceedings.

In this article, we review the court and arbitration rules in Germany, Brazil, the People’s Republic of China and England and Wales and demonstrate how these rules can collide when gathering evidence in international arbitration. We then ask whether an arbitral tribunal should, in dealing with issues relating to these topics, permit each party to present its case in a way with which it is familiar (i.e., by providing pre-trial disclosure and witness evidence only to the extent that that would be permitted in their home jurisdiction). We consider such an approach to be flawed, and present our reasons in the conclusion.

GermanyDISCLOSURE IN COURT PROCEEDINGS IN GERMANYGerman civil proceedings are characterized by the principle of party autonomy. In contrast to an inquisitorial system in which the court, ex officio, investigates the facts of the case, in Germany the parties must present the case themselves.

As a general rule, the claimant must bring forward all the facts that support a claim, while the defendant must present the facts that may lead to a dismissal. Where facts are contested, the burden of proof is generally on the party that puts forward a fact to substantiate its case. If the party bearing the burden of proof fails to produce evidence, it will generally lose on that aspect of the court proceeding.

The German Code of Civil Procedure (Zivilprozessordnung or ZPO) provides for the following methods of presenting evidence: (i) testimony of experts, (ii) judicial inspection, (iii) examination of witnesses, (iv) testimony of the parties and (v) submission and inspection of documents. With respect to documentary evidence, there are no provisions for pre-trial discovery or, in particular, for electronic discovery. Indeed, the German Federal Court of Justice (BGH) has made it clear that a party is generally not obligated to provide the opponent with material that the opponent does not already possess. However, Sections 422 and 423 of the ZPO provide for a narrow obligation to produce specific documents if one party has a material right under civil law to receive the document, or if the party possessing the document refers to it in a brief to the court without also submitting the document. Although German law does not allow for “fishing expeditions,” in these situations a party may request that the court order the other party to produce that specific document.

Section 142 of the ZPO provides that the court may order a party or a third person to produce any documents that have been referred to by such party or third person. However, the German Federal Supreme Court has held that Section 142 does not relieve the party that makes reference to a specific document from its obligation to specify and substantiate the facts supporting its claim. Accordingly, the civil court must not order the production of documents merely aiming at retrieving information (BGH NJW 2007, 2989, para. 20). In other words, Section 142 must not be used as a tool to discover new facts. Section 142 may only be used to retrieve evidence for facts which have already been stated by the respective party.

A party’s failure to comply with an order to produce a specific document means that the assertions of the other party concerning the nature and contents of the document may be considered as proven (Section 427 of the ZPO). The same applies if a document is concealed or destroyed by one of the parties with the intent to deprive the opposing party of its use. Thus, a party must bear the potentially adverse consequences if it fails to produce or if it conceals evidence. The conduct of the party will be taken into consideration when the court assesses whether a factual allegation is true or untrue.

DISCLOSURE IN ARBITRATION PROCEEDINGS IN GERMANYIn accordance with the principle of party autonomy, the German Code of Civil Procedure provides that parties to an arbitration proceeding are free to determine the applicable rules of procedure. In this respect, the parties may agree that they shall disclose documents to the other party.

In international arbitration—especially if US parties are involved—the parties often agree on the exchange of documents, although usually in a more limited way than in US pre-trial discovery. Such agreement often follows the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration (the IBA Rules). The parties may also agree on the rules of an arbitration institution, such as the International Chamber of Commerce (ICC) or the German Institution of Arbitration (DIS).

The arbitration rules chosen will determine the rules of procedure, including the question of whether the parties are obliged to disclose documents. For example, the DIS Arbitration Rules specify that the applicable rules will be the statutory law in force at the place of arbitration, the DIS Arbitration Rules and any additional rules agreed upon by the parties (in particular the IBA Rules). Otherwise, the arbitral tribunal shall have complete discretion to determine the procedure.

The DIS Arbitration Rules also provide that the arbitral tribunal shall determine the facts underlying the dispute. To this end the tribunal has the discretion to give directions, to hear witnesses and experts and to order the production of documents. In this regard, the arbitral tribunal has more flexibility as to questions of the production of documents than does a state court in court proceedings. However, the arbitral tribunal will normally not make use of this power under the DIS Arbitration Rules in a way that is comparable to, for example, US pre-trial discovery; instead the tribunal will take a more restricted approach to document production, e.g., along the lines of the IBA Rules.

BrazilDISCLOSURE IN COURT PROCEEDINGS IN BRAZILThe Brazilian Code of Civil Procedure does not provide for a pre-trial discovery phase. Despite the plaintiffs being allowed to submit documentary evidence with the initial complaint, it is only later in the proceedings that the production of evidence takes place.

Litigation in Brazil starts with the plaintiff’s submission of its initial complaint. This must contain, among other items, a statement of the facts and considerations of law, a detailed description of the claim and a description of the evidence the plaintiff intends to present or use during trial1. This requirement, however, is a mere formality, as most plaintiffs request, in their initial submission, the opportunity to use all types of evidence permitted by law.

The specification, and subsequent production, of evidence normally occurs under the direction of the court after the submission of the defendant’s answer to the plaintiff’s initial complaint. During this post-answer discovery phase, the parties may submit requests for the production of evidence and courts may admit any type of evidence allowed by law, such as testimonial, documentary or real evidence2, which includes expert reports. A judge has the authority, or may be asked by the parties, to determine which types of evidence are really necessary to the trial and to reject those deemed irrelevant or merely dilatory.3

In making a request for the mandatory production of documentary evidence by the other party, the requesting party must provide a complete and individualized description of the document or object, explain the purpose of such evidence and state why the document or object is believed to be in the other party’s possession. If the other party unreasonably refuses to produce such evidence, the judge may issue an order for search and seizure and, when necessary, request law enforcement assistance.

The Brazilian Code of Civil Procedure and the Constitution, however, provide for a number of privileges and immunities with respect to evidence requested of a party.4 These privileges and immunities include evidence that may:

Concern the intimacy of the party’s family

Offend a duty of honor or a professional or confessional obligation if presented

Result in the disgrace of the party or the party’s family if publicized

Otherwise result in the party’s self-incrimination

Meet any other relevant reason, at the discretion of the courts

Therefore, the distinction between discovery as provided in the Brazilian civil procedure and that of common law systems concerns not only its timing, but also the power granted to courts to intervene, to decide on the relevance of the evidence and to decide on the extent of the parties’ obligation to submit evidence that may be unfavorable to their own defense.

DISCLOSURE IN ARBITRATION PROCEEDINGS IN BRAZILParties conducting arbitration in Brazil are authorized by Brazilian Arbitration Law to freely choose the rules applicable to their dispute, provided that “there is no violation of the good morals or public policy.”5 In the same way, the law authorizes the parties to elect the national laws or institutional rules to govern the arbitration procedures. Regardless of the procedures to be adopted, arbitration must always observe due process, a principle contained in Article 5, LIV of the Brazilian Constitution. This comprises all other procedural principles, such as the adversarial system, the equal treatment of parties and the impartiality and independence of arbitrators.

Accordingly, Brazilian Arbitration Law clearly grants parties considerable freedom to decide which procedure best fits their interests. This freedom includes allowing the parties to decide on the best moment for the production and presentation of evidence, the level of control that the arbitrators have over the production of evidence and even the extent of the parties’ obligation to produce evidence.

Theoretically, the parties may establish a preliminary phase for the production of evidence with minimum interference by the arbitrators, similar to typical US pre-trial discovery, or the parties may even make reference to the US pre-trial discovery rules. In the event of a refusal by a party to disclose certain unspecified documents, however, the results may be somewhat different.

According to the Brazilian Arbitration Law, if it is necessary to enforce an order for the presentation of certain evidence, the arbitrators shall submit the order to the ordinary courts with jurisdiction over the matter. Brazilian courts have been deciding that requests for the production of evidence must clearly specify the documents sought6 and it is not clear how a Brazilian court would enforce an arbitral order for the production of unspecified evidence. Courts could certainly refuse to enforce an order mandating the disclosure of documents or information in violation of legal privileges and immunities, as such an order would be against public policy and good morals. There is no settled law, however, governing the extent to which the courts have authority in refusing to enforce an arbitral order other than on grounds of violation of public policy and good morals.

As an alternative to requesting judicial enforcement of the request for evidence, arbitrators may order the parties to present evidence and draw adverse inferences from a party’s refusal to deliver a document. Brazilian Arbitration Law is not clear on this subject, but it does state that a party’s failure to comply with a procedural order must be taken into account by the arbitral tribunal when resolving the case.7 This alternative is consistent with the Brazilian Code of Civil Procedure, according to which the judge shall consider the facts as true when a party unlawfully refuses to present a document.8 Therefore an arbitration award based on such adverse inferences arising out of a failure to produce documents is unlikely to be considered inconsistent with Brazilian law or public policy.

Although the Brazilian Arbitration Law does not expressly restrict the freedom of parties to decide on the rules that govern the arbitration procedures, the election of discovery rules too different from the standard civil procedure rules may therefore bring a certain degree of uncertainty to an arbitral proceeding.

People’s Republic Of China (PRC)DISCLOSURE IN COURT PROCEEDINGS IN THE PRCStrictly speaking, there is no discovery concept in a civil litigation in the PRC. This corresponds to its origins of being a civil law system and, more specifically, reflects the inquisitorial approach adopted by the PRC courts, where the court investigates, inquires and collects evidence, rather than permitting the parties to compel one another to produce evidence.

The PRC Civil Procedure Law and its related judicial interpretations establish the burdens of proof that the parties to a civil litigation should abide by.

Essentially, the idea of a burden of proof is that the “one who asserts must prove.” The parties should produce evidence to prove the facts on which their own claim/allegation and/or refutation/rebuttal are based. The party that bears the burden of proof may lose the case if it fails to produce evidence or if the evidence it produces does not prove its case. In cases where a party cannot obtain evidence due to no fault of its own, the court may conduct its own investigation and collect relevant evidence upon the request of the party or of the court’s own motion. Additionally, a shifting of the burden of proof may occur in certain types of tort litigation as prescribed by law. With respect to the form of production of documentary evidence:

Original documents must be produced in court and copies of the documents are allowed after they are verified by the court against the originals.

Documents that are created outside Mainland China must be notarized and legalized. Chinese translations must be attached to any non-Chinese documents submitted to the court.

The PRC Civil Procedure Law and its related judicial interpretations do not include any procedure by which a party to a civil litigation is to be compelled to produce documents upon the request of the other party or by an order of the court. However, the court can order preservation of evidence, including documents, by means of its own motion or at the request of the other party in certain circumstances. An order for “preservation” means that the court is exercising control or jurisdiction over the relevant evidence, including documents. A party failing to produce the evidence ordered to be preserved by the court may be subject to penalties, which could include criminal charges.

DISCLOSURE IN ARBITRATION PROCEEDINGS IN THE PRCThe PRC Arbitration Law, which governs both domestic arbitration and “foreign-related” arbitration seated in China (the latter covers an arbitration in which the parties are domiciled in different jurisdictions), follows the rules of burden of proof provided in the PRC Civil Procedure Law. Arbitration rules of the arbitral institutions in China also comply with the PRC Arbitration Law and Civil Procedure Law. Therefore, the approach to disclosure in both domestic and “foreign-related” arbitration is basically the same as that of a civil litigation before a PRC court, as described previously.

Foreign-related arbitration is usually conducted in Mainland China under the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules. These rules adopt the “one who asserts must prove” format, and do not expressly provide for discovery of documents. However, Article 29 of the Rules permits the arbitral tribunal to adopt an inquisitorial or adversarial approach when examining the case, and the arbitral tribunal has power under Articles 37 and 38 to investigate and to require parties to produce evidence. Additionally, Article 7 requires the parties to “proceed with the arbitration in bona fide cooperation.”

It may therefore be possible for a party to draw the attention of the arbitral tribunal to the existence of relevant documents that have not been disclosed by the other party, and to request the tribunal to make inquiries concerning such documents, but the tribunal does not have power to force any party to disclose documents.

While it is possible for the parties to agree to bring in a different set of arbitration rules replacing or modifying the CIETAC Arbitration Rules, such practice is generally not encouraged and the CIETAC Arbitration Rules also impose certain practical and legal constraints on such a practice.

England and WalesDISCLOSURE IN COURT PROCEEDINGS IN ENGLAND AND WALESThe basic principle concerning disclosure obligations of parties to an English court litigation is that the parties have a duty both to search for documents and to produce documents revealed by that search, if those documents either help or damage the case of the party producing them or the case of another party to the proceedings. This principle is set forth in Civil Procedure Rules (CPR) Part 31.

However, nothing in CPR31 addresses the question of disclosure obligations on foreign parties to proceedings before the courts of England and Wales. By submission to the jurisdiction of the courts of England and Wales, parties are obliged to adopt and comply with the Civil Procedure Rules, including the duties of search and disclosure as set forth above.

DISCLOSURE IN ARBITRATION PROCEEDINGS IN ENGLAND AND WALESAs a matter of English law, the Arbitration Act 1996 (1996 Act) sets forth a broad general principle with respect to evidence in arbitration proceedings seated in London. Section 34(2)(d) of the 1996 Act provides that “it shall be for the Tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. Procedural and evidential matters include [among other things] whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage.”

The broad discretion given to English tribunals by this provision is free from any requirement that the tribunal bring to bear any concept of national law with respect to the document production process.

Under earlier arbitration laws in England and Wales, the court had power to intervene in the arbitration to assist in the disclosure process, by ordering discovery of documents and interrogatories. That power was repealed when the 1996 Act was introduced and courts have subsequently concluded9that: “There [is] nothing in the UNCITRAL10 Model Law which suggests that the Courts should assist with the process of disclosure. Indeed disclosure questions have been taken from the Court … and given back to the Arbitral Tribunal. That was recognised by sections 34 and 35 of the 1996 Act including section 34(2)(d) which makes disclosure by the parties a matter for the Arbitral Tribunal.”

Accordingly, where a tribunal is faced with parties from differing backgrounds in a dispute having its seat in London, there is nothing in the applicable legislation that provides a code by which the tribunal should prescribe the form of disclosure to be given by each party.

ADOPTION OF IBA RULES FOR DISCLOSUREWhat commonly happens in cross-border arbitrations is that the tribunal may either (i) invite the parties to consent to the application of rules such as the IBA Rules or (ii) (perhaps in cases where the parties have already expressed widely differing views on the appropriate scope of disclosure) indicate that it will be guided with respect to disclosure issues by the provisions of the IBA Rules, without formally adopting them into the process.

The effect of using the IBA Rules, either by way of agreement between the parties or as a set of guiding principles for the tribunal, is that there is a degree of “shared pain” between the parties. Parties in common law-based jurisdictions such as England, who are used to having a duty to search extensively for relevant material and to produce such material, whether or not it is helpful to their case, may to some extent be relieved by having initially at least only to search for and produce the documents on which they wish to rely. These parties may, however, regret the fact that the opposing party is not subject to a broad duty of search and disclosure of documents which may be unhelpful to their case.

On the other side, parties in civil law-based jurisdictions, who would not normally be required to produce much, if any, documentation before trial, may find it less unnerving merely to have to produce the documents on which they wish to rely at the first stage, rather than having to produce all of their documents.

The second phase of disclosure prescribed by the IBA Rules (the making of specific requests for additional disclosure and ultimate determination by the tribunal of any disputed categories of disclosure) provides a degree of supervision over, and restraint on, the parties’ further disclosure requests. Experience suggests that tribunals generally adopt a reasonably pragmatic approach to the determination of disputed requests for additional production. While it is likely to be the case that the overall volume of document production is smaller than in common law litigation, the reality is that the core documents upon which the matter will be decided at trial are likely to be those which the parties have produced as a result of the application of an IBA Rules process.

ADOPTION OF NATIONAL RULES FOR DISCLOSUREBased on this country-by-country analysis, it seems to us that, were a tribunal to order differing disclosure obligations depending on the rules of each party’s location, the tribunal would risk undermining the validity of its award in two ways. First, the tribunal would breach the principle that appears in most UNCITRAL Model Law arbitration laws, namely, that the tribunal must adopt procedures that are fair to the parties and that allow each party a reasonable opportunity of proving its case. Second, a disclosure process that does not impose the same obligations on each party might give rise to a challenge to the award on the grounds that either: (i) a party was unable to present its case as a result of not getting disclosure from the other party or (ii) the arbitral procedure was not in accordance with the law of the country in which the arbitration took place because the procedures adopted were not applied equally to both parties.

Given the sensitivity of arbitral tribunals to the risk of an appeal or challenge to the award, it seems to us unlikely that a tribunal would be persuaded that it is appropriate to order differential disclosure in cases involving parties from different backgrounds. No case law to that effect exists in the jurisdictions considered in this article, and we believe that the question should be determined by analogy to the way in which disclosure rules apply in national courts. In such proceedings, once the parties have submitted to the court’s jurisdiction, they waive their right to behave, in the dispute resolution process, as they would, or would be able to, were the proceedings taking place in their own domestic court.

The ability of arbitral tribunals to deal with disclosure issues fairly, without having to adopt national rules, has been, and remains, a key positive feature for using arbitration in cross-border disputes. Although particular issues may arise with respect to, for example, the treatment of documents for which a claim of privilege is made, the scope of such disputes is likely to be more limited than in a court proceeding and should not significantly delay or derail the resolution of the underlying issues in the international arbitration.

Observations in this article about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.

6. See “The request for exhibition of document shall strictly provide the maximum specification of the document, as well as the purpose of this evidence,” TRF-5 [regional federal court of appeals], AG No. 9005013940, Relator Francisco Falcão, 06.25.1990, and [INSERIR].

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